The Lao People's Democratic Republic

Country Context

The Lao PDR was established in 1975 succeeding the Kingdom of Laos, following decades of civil war and heavy involvement in the larger Indochina war in the eastern and northeastern provinces. The Constitution of Lao PDR, which was promulgated in 1991, recognizes the Lao People's Revolutionary Party (LPRP) as the leading nucleus of the political system. Lao PDR is a unitary state comprising 18 Provinces, 141 Districts and 1 special zone under Bokeo province, and 10,552 Villages. The Government is run by the Council of Ministers, whose decrees provide the main legislative basis for government operations. Political power rests with the LPRP whose Politburo and Central Committee are the organs for making the policy-guidelines. Their decisions are ratified by party congresses held at 5 year intervals, with the next congress due in the first quarter of 2006. Over the last decade the Government has been undertaking public administration reform, targeting improvements to the structures, functioning and management of government organizations. The current governance system conforms to a centralized pattern with additional administration at the Provincial and District level. Efforts are currently underway to assert greater central authority and accountability (fiscal and administrative) over provincial finances and programme operations.

The Lao PDR is a 'Landlocked and Least Developed Country' (LLDC) and as such is considered by the international community to be one of the poorest countries in the world. Geographic conditions restrict both the quantity and quality of agricultural land and pose difficulties in the development of trade, social infrastructure, and transport and communications links. A highly dispersed and thinly spread population further compounds this. Nevertheless, the Lao PDR is located in the centre of a dynamic and prospering region and as such has the potential to provide a strategic resource base and land-link to its bordering neighbours.

The Lao Government's national development priorities are focused around lifting the country from the ranks of least developed nations by 2020. The country faces many unique human development challenges, not the least of which is that the majority of the population (82.9 percent) live in rural and remote areas without access to basic infrastructure and services. Additional challenges include ethnic diversity (there are 49 officially recognized ethnic groups); opium production (total area under poppy cultivation is estimated between 900 and 2,900 ha); and Unexploded Ordnance (50 percent of the land and surface area and 15 out of 18 provinces are contaminated). An estimated 32 percent of the population lives below the national poverty line. Although the Lao PDR has experienced significant advances in social development in recent years and progress has been made towards the MDGs, the country is categorized as having a 'medium-low level of human development' and faces many associated challenges. The UNDP Global Human Development Index (HDI) has shown consistent improvement since 1993 when the Lao PDR ranked 141 out of 173 countries. Lao PDR is currently ranked 131 out of 177 countries.

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Macroeconomic Situation

The Lao PDR has undertaken significant economic reforms to move from a command economy towards a market economy. When the Lao PDR was established in 1975, a policy of "accelerated socialization" included extensive agricultural collectivization. In 1982, "market forces" were introduced and promoted at the Third Congress of the Lao People's Revolutionary Party (LPRP). In 1986, the Government officially abandoned the central planning system and introduced the New Economic Mechanism (NEM). Important steps included near total price liberalization, exchange rate unification, removal of the Government's trade monopoly and the opening up of foreign and inter-provincial trade. Private firms were allowed to enter the market and the number of State-Owned Enterprises (SOEs) was reduced by 75 percent.

Towards the end of the 1990s, due to the Asian financial crisis and a breakdown in monetary and fiscal management, the country underwent an acute period of macroeconomic instability. In late 1999 the Government responded by launching a successful stabilization program (tightening monetary and fiscal policies). By early 2001 the currency had stabilized and inflation was reduced to single digits. Headline inflation averaged 11 percent per annum from 2001 to 2004 compared to an average of nearly 70 percent per annum during 1997-2000. Although Lao PDR's track record of maintaining single-digit inflation rates over a long period is weak, the short-term macroeconomic situation is satisfactory. Inflation rates again reached single digits (8.6 percent) in December 2004 and dropped to 5.5 percent in June 2005.

In recent years the Lao PDR has experienced relatively good economic growth ( 6.3 percent since 2002) however high income groups continue to be the main beneficiaries. The IMF projects an ongoing annual growth rate of 6-7 percent in real GDP between 2006 and 2010, incorporating strong impetus from the mining and hydro-electric sectors and growing employment . External trade is expected to continue to grow at more than 10 percent annually. Challenges to macro-economic management include the low ratio of government revenue to GDP and the high external debt burden (servicing external debts is likely to include approximately 20 percent of recorded exports and 20 percent of Government revenue). In addition many public enterprises continue to make substantial losses and the trade environment is not yet attractive enough to foreign investment. The three fundamental challenges for Lao PDR include maintaining macro-economic stability, improving competitiveness and advancing trade reforms.

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Regional Integration

Lao PDR is increasing its integration, both regionally and globally. Sub-regionally, Lao PDR is an active partner in the emerging Greater Mekong Sub-Region (GMS) Economic Cooperation Program. The GMS program has strategic importance in terms of potential exports to neighbouring countries, the development of transport corridors and the sustainable development and management of the Mekong River. Given that most trade and foreign investment relations are with these countries, including the sale of hydropower, ongoing GMS initiatives are supported strongly by Lao PDR. Lao PDR also participates in the Mekong River Commission (MRC), which explores opportunities for regional cooperation in the Mekong River Basin. On a broader regional and global level, Lao PDR joined the Association of Southeast Asian Nations (ASEAN) in 1997 and will join the ASEAN Free Trade Area (AFTA) in 2008. A range of global trade concessions and agreements (discussed in the CCA trade section) are in place or under negotiation, significantly expanding export opportunities for Lao PDR. Foreign Direct Investment (FDI) levels are variable but substantial (relative to the size of the economy). In 1997, Lao PDR applied for the WTO membership and is presently in the process of accession. The membership of WTO will open up the country's economy wider and help to accelerate the economic reform process. Furthermore, it has also joined the Integrated Framework for Trade Related Technical assistance, which aims to strengthen its export competitiveness.

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National Strategies and Development Financing

Since 1975 the Government has endeavoured to strengthen the stability of society and has instituted national development policies on a 'step by step' basis. The basic tenet underlying the 'step by step' approach is to ensure that changes are introduced gradually, and at a rate that does not make them counterproductive or disruptive to society. The Lao PDR seeks to preserve national values and cultural heritage and to maintain a united society, whilst simultaneously taking part in regional integration and globalization. The essence of the New Economic Mechanism has been to introduce reforms aimed at the gradual transformation from a centrally planned command economy to a more market-orientated economy. Specifically, the Government has undertaken structural transformations designed to promote national integration, develop a sustainable resource base and build-up the economic, physical and social infrastructure of the country. Such steps have included a particular focus on the development of transport and communication networks.

In 2003 the Government of the Lao PDR launched its Poverty Reduction Strategy Paper, known locally as the National Growth and Poverty Eradication Strategy (NGPES) . The UN system and donor partners established working groups to support its implementation and operationalization. MDG goals and targets were localized to fit with the NGPES priorities. The strategy provides the framework under which all of the Government's future growth and poverty eradication programmes are mandated for development and implementation. Poverty Eradication Strategy commenced in 1996 when the country's sixth Party Congress defined its long-term development objective as freeing the country from the status of least developed country by 2020. Following a long consultation and drafting process, the National Assembly mandated the Government to implement NGPES in October 2003.

The NGPES has dual objectives: promote sustainable growth and alleviate poverty, particularly in the 72 poorest districts (from which 47 are priority districts) within four main sectors (Agriculture, Health, Education and Infrastructure). Although the NGPES is clearly represented in the plans of the four main sectors, an appropriate budget is often missing. Further, there is a lack of strategic and transparent monitoring mechanisms for implementation. While efforts are underway to cost sector plans and finally sequence/prioritize them in accordance with available budget envelops, further work is required to optimally implement the NGPES.

In 2005 the Government of the Lao PDR prepared its sixth five year National Socio-Economic Development Plan (2006-2010) NSEDP that will subsume the operationalization of the NGPES and thus the MDGs. Such commitment will need to be accompanied by a clear reflection of priorities in annual budget allocations. Domestic revenue is increasing however the rate of increase is slowing. Improvements to revenue collection are central to the affordability of development activities and this must be a complementary focus of development planning. External development financing remains high. Current costing analyses predict a shortfall between combined development funding and necessary expenditure, further emphasizing the importance of privatization and sound economic management.

Official Development Assistance (ODA) resources play a central role in the Lao economy, constituting a major part of the Public Investment Programme (PIP). In the financial year 2002/03, ODA amounted to 61 percent of the total amount of the PIP. The majority of donor assistance is concentrated in the economic sectors such as agriculture, forestry and communication (63 percent of ODA in 2002/03). Although only 10.3 percent and 7.8 percent of foreign funds are allocated to the education and health sectors respectively, these funds make up 72.4 percent (41.2 percent for Education and 31.2 percent for Health) of the total public expenditure in the socio-cultural sectors. Any failure to maximize the full potential of ODA represents a considerable loss of resources. The challenge for the Government and its partners is to balance distribution of ODA and secure basic social services for the people, whilst at the same time planning for a future less dependent on aid.

Efforts are currently underway to clarify further the governmental roles and responsibilities in donor coordination. These efforts will increase effective planning and delivering of assistance in a timely manner. Similar challenges also relate to ranking priorities, coordination between the provinces and districts and adequate monitoring of resource allocation. Continued efforts are required to streamline follow-up, reporting and approval processes in partnerships with donors. Donor coordination also requires attention and whilst 'Donor Working Groups' bring together various development partners, more careful and sustained collaboration is required. In particular, development partners need to deepen the dialogue and tighten the alignment between ODA and national development strategies.

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Data Availability and Constraints

Availability of data is considered a major constraint in policymaking and progress monitoring in the Lao PDR. Data disaggregation by sex, location and ethnicity is improving but does not yet support adequate analysis and policy formulation. The data collection carried out as part of the MDG reporting process in 2003 and 2004 highlighted a number of data gaps that remain unaddressed. There are a range of reasons for the data constraints including poor coordination between line ministries and agencies and between donors and development partners on data collection and analysis efforts. In addition, Government lacks the human resources and financial capacity to undertake data collection, analysis and reporting. At this stage the decree on statistics is yet to be adequately implemented. Data collection and analysis is also expensive, requiring continued and consistent support from international partners.

A number of initiatives have been put in place to strengthen data management capacity in the Lao PDR, linked to strengthening monitoring and reporting capacity. The National Statistics Centre is being supported to improve data collection, and line ministries are being supported to enhance their collection of primary data. Lao Info a version of Dev Info software is to be launched in November 2005, this will enhance data accessibility and monitoring of the Millennium Development Goals in Lao PDR. Towards the end of 2005 a number of important data collection exercises will be concluded that will greatly assist in strengthening statistical knowledge in the Lao PDR, including the ten-year census (later conducted in March 2005), a reproductive health survey, and a HIV AIDS survey. The UNCT considered delaying the CCA until such data was available, however this implied delaying the next UNDAF programming cycle and was therefore not a viable option.

The National Statistics Centre currently holds primary responsibility for data collection and analysis and has recently acquired a software package to better manage national data. This program will provide a one-stop data management capacity for monitoring indicators at the outcome and impact level in the Lao PDR, including indicators for monitoring the CCA and UNDAF, the NGPES, ASEAN indicators, the MDGs, the National Human Development Report, and other Government reporting needs.

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Strengthening Institutional, Administrative and Human Resource Capacity

The Lao PDR is critically short of the expertise required for development. In general, there is a limited number of experienced and skilled personnel at all levels of society and in all sectors. This poses a serious constraint on development in the Lao PDR.

There is also a need to further develop effective, transparent and accountable operational mechanisms and administrative procedures at the operational levels and sectors of government. Moreover, due to rapid economic progress, the demand for qualified, skilled or appropriately trained personnel (particularly managers) is ever increasing. However, at the same time it is noted that low public salaries may contribute to low job performance, the recent National Socio Economic Development Plan (2006-2010) presented at the Round Table Meeting in January 2006 highlighted the commitment by the Government to continue the reform of the civil service, among other things with a view to addressing the issue of salaries of public servants. The Government is also committed to establish an efficient social security system for all Lao people and, assures to implement the policy on salaries and support the provision of incentive payments to staff working in remote areas.

There is an urgent need to improve both the numbers of trained people and the quality of training. Such progress will require focusing national development efforts on formal and non-formal education, including language, vocational and skills training.

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Indicator

Value

Year

Total population

5. 62 million

2005

Population density

23. 7 people per square km

2005

Population growth rate

2. 1 percent per year

2005

Population living in rural areas

72.8 percent

2005

infant mortality rate

70 deaths per 1,000 live births

2005

Life expectancy at birth

59 years (male); 63 years (female)

2005

Under-five mortality rate

97.6 deaths per 1,000 live births

2005

Maternal mortality ratio

405 deaths per 100,000 live births

2005

population distribution by gender, sex, ratio, and growth rate by province

2005

Area

Female

Male

Total

% of population in each province

Sex ratio female/male

North

 

 

 

 

 

Phongsaly

82,838

83,109

165,947

3.0

100.33

Luangnamtha

73,599

71.711

145,310

2.6

97.43

Oudomxay

133,126

132,053

265,179

4.7

99.19

Bokeo

73,162

72,101

145,263

2.6

98.55

Luangprabang

203,429

203,610

407,039

7.2

100.09

Huaphanh

139,372

141,611

280,938

5.0

101.64

Xayaboury

167,633

171,036

338,669

6.0

102.03

Center

Vientiane C.

349,624

348,694

698,318

12.4

99.73

Xiengkhuang

113,944

115,652

229,596

6.0

101.50

Vientiane P.

191,433

197,462

388,895

6.9

103.15

Borikhamxay

111,293

114,008

225,301

4.0

102.44

Khammuane

171,825

165,565

337,390

6.0

96.36

Savannakhet

419,101

406,801

825,902

14.7

97.07

Xaysomboon SR

18,686

20,737

39,423

0.7

110.98

South

Saravane

165,508

158,819

324,327

5.8

95.96

Sekong

43,041

41,954

84,995

.5

97.47

Champasack

306,524

300,846

607,370

10.8

98.15

Attapeu

57,338

54,782

112,120

2.0

95.54

Total

2,821,431

2,800,551

5,621,982

100.0

99.26

Urban

759,904

763,043

1,522137

27.1

100.5

Rural with road

1,452,837

1,442,342

2,895,179

51.5

99.3

Rural without road

607,122

590,947

1,198,069

21.3

97.3

NS

2,378

4,219

6,597

0.1

177.4

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